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Tuesday, September 29, 2009

Glomac


BUY Target Price RM1.37

1QFY10 : Stronger quarters ahead

· Broadly inline
1QFY09 results made up 21% and 25% of full-year house and consensus estimates respectively. We deem the results to be broadly in line as we expect results to be stronger in the remaining quarters mainly due to increasing contributions from Glomac Tower and Glomac Galleria as construction gets underway. No dividends were proposed for the quarter.

· Lower topline but higher bottomline
Revenue dropped 25.8% y-o-y due to the completion of Suria Stonor in FY09. However, bottomline grew by 6.9% y-o-y due to recognition of RM4.9m fair value adjustment on Block B in Glomac Business Centre which is pending completion of sale for RM22.6m. The recognition of FV adjustment prior to completion of sale is required by FRS. There will be no impact to our estimates as we have previously imputed this as gain on disposal rather than FV adjustment.

· Sales momentum gaining traction
Sales have improved q-o-q from RM24m to RM61m, underpinned by sales recovery in the Bandar Saujana Utama township as well as strong sales from Sri Bangi. We expect sales momentum to be sustained in the coming quarters backed by strong bookings in Phase 1 of Glomac Cyberjaya which has achieved 90% take-up as well as encouraging registration for new launches. The company is also negotiating for the en-bloc sale of two office towers in Glomac Damansara by end CY09. If successful, there will be scope for upward revision to our earnings. In the meantime, unbilled sales of RM333m will provide earnings visibility over the next 2-3 years.

· More landbanking activities in the pipeline
Glomac sold 18.2m treasury shares at RM1.098 each in an off market transaction yesterday. This represents 6.1% of Glomac’s paid-up capital. Together with proceeds from sale of investment properties, the financial position of Glomac will be enhanced from an already solid position where net debt/equity is at just 0.13x. This will allow the company to pursue landbanking opportunities. The company is negotiating for a few pieces of commercial land in the Klang Valley.

· Reiterate BUY
We make minimal changes to our net profit estimates for housekeeping purposes. However, EPS for FY10-FY12 will be diluted by 2.6%-6.9% due to the dilutive effects of treasury shares sold. Nevertheless, we remain positive on Glomac with a BUY call while target price is reduced to RM1.37 (previously RM1.40) based on P/E of 10x on FY10 earnings.

Source : ECM Libra

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